The Australian Competition and Consumer Commission (ACCC) initiated the legal action against the proposed $215 million takeover after it issued an injunction in March on the grounds that such a deal would be uncompetitive.

In a judgment handed down in Sydney yesterday (25 August) by Federal Court Justice Arthur Emmett, the ACCC argument that this deal would lessen competition was comprehensively rejected.

Justice Emmett found that rather than reducing competition, such a deal would in fact enhance competition as it would give independent retailers greater ability to compete with major supermarket chains such as Woolworths and Coles.

Metcash is Australia's largest grocery wholesaler, with its clients including IGA supermarkets.

In arguing that Metcash's proposal to take over the 80 Franklins stores in New South Wales would lessen competition, the ACCC failed to include Woolworths or Coles as competitors. The regulator mounted an argument that concentrated on the wholesale, rather than retail, supply of packaged groceries.

Justice Emmett found that this ignored commercial realities, and agreed with the argument mounted by Metcash that in acquiring Franklins, the company would not be able to price above a competitive level on the wholesale side, as it would substantially reduce the ability of its retailers to compete with the major retail grocery franchises.

Justice Emmett also refuted the suggestion by the ACCC that a credible and reputable alternative buyer to Metcash would come forward to purchase Franklins.

Freehills commercial litigation partner Grant Marjoribanks and competition partner Michael Gray led the firm's team. Barristers Justin Gleeson SC, Peter Brereton SC and Declan Roche were also engaged by Metcash.

The ACCC used barristers Norman O'Bryan SC and John Halley SC, and were instructed by Matthew Blunn, national group leader, dispute resolution, with the Australian Government Solicitor.

Pick N Pay, the South African company that owns Franklins, engaged Blake Dawson partner and competition and consumer protection team head Peter Armitage. Barristers John Griffiths SC and Cameron Moore also advised Pick N Pay.

Mallesons Stephen Jaques competition law and regulatory partner Sharon Henrick poured cold water on the idea that the Federal Court ruling would act as a spur for the Australian M&A market when she spoke to Lawyers Weekly about the implications of yesterday's ruling.

"Some people seem to think that people have been holding back their deals and waiting for the decision," she said. "In reality, these kinds of deals are rare, and they are rare for a reason ... I don't think there will be a rush of deals through the ACCC as a result of this decision or people asking the ACCC to rethink previous decisions."

While yesterday's judgment was a defeat for the ACCC in the fist instance, Henrick defended its right to bring such action to the Federal Court.

"People should be slow to criticise the ACCC for bringing cases that it loses," she said. "I think a very important part of the Commission's remit is to test what the boundaries are, and that means it will occasionally lose cases."

The ACCC said it was "disappointed" by the decision. It is considering its options for appeal.